How 2 Validate a Business Idea
Bradley George, an Associate Professor of Entrepreneurship at Babson, recently led a How 2 Tuesday session focused on the process of validating a business idea. He began by defining “validate” as “to demonstrate or support the truth or value of something.” Professor George explained that aspiring entrepreneurs must confirm that both their idea solves a real problem and that the idea is worth pursuing.
To begin, you must first validate whether you are solving a problem that customers care about. Even if they are interested in your idea, they won’t pay for your solution if they don’t see the problem. In customer interviews, be sure to ask if they see the issue that you are solving as a problem, and whether this problem is something they would pay money to fix. When you articulate the problem, you must convince customers that this is a problem worth solving. If the customer would not pay to fix the problem, either they are outside your target market or the problem is less important than you may have thought.
After you confirm that customers see the problem at hand, determine whether your solution actually addresses the problem. Does the customer see your idea as the solution? Describe to the customer how your idea addresses the problem and see if they are convinced. One idea that Professor George thinks that aspiring entrepreneurs should overcome is that if they talk about their idea, someone else will “steal” it. This happens significantly less often than people would think. Being an entrepreneur is difficult! Most people that you will talk to about your idea do not care enough to invest the time and effort necessary to make it successful. Customer feedback is essential as you validate and develop your idea.
Once your customer agrees that the problem exists and that you have a good solution, the third step is to figure out if anyone would actually pay to solve the problem. Is your solution perceived to be better than alternatives? Does your solution provide tangible value? Think of reasons that your customer would be willing to pay for your solution. Is your idea’s value related to the problem? If not, are you solving a different problem?
You should also consider a few feasibility hurdles- most notably, whether the potential market is big enough to achieve your personal and professional goals. Calculate your potential market as only those both willing and able to pay for your solution. Don’t just provide standard industry numbers; focus on the people who will walk through your door and give you money. When segmenting the market, make the segments as different from each other as possible, and within each segment, as similar as possible. Think about differentiating the groups by people who are really interested in your product, people who are mildly interested, and people who are not interested. Look within each of these segments and identify common traits associated with the people in each.
When determining your potential market, start by conducting interviews rather than surveys. Surveys are great for confirming ideas, but interviews help to generate these ideas and get to know the customer. Interviews will give you questions to ask on a future survey. Ask the customer how they solve the problem today, what they like and dislike about existing solutions, and what their “ideal” solution would be. Then, ask if they would pay and how much they would pay for your solution.
Once you determine who is willing to pay, figure out what makes them different from people who are unwilling to pay. Whether they like or dislike your idea, ask why. What is it about these people that makes them willing or unwilling to pay? “Why” is the single most important question you can ask when trying to understand the market. Research has shown that if you ask “why” five times, you will get to the truth. Identify common characteristics that people with varying levels of interest in your product share, other than basic demographics. Think about their habits and interests. Once you know what your target market is, you can figure out how many people fall into it.
The number of interviews you need to conduct will vary based on the market. For example, if you are in consumer products, you will likely need to conduct a few hundred. Get to the point at which you are confident that if you talk to a new person with similar characteristics to those in one of your market segments, you will get the same answers. There isn’t a magic number of interviews necessary, you just have to put in the work until you have a firm understanding.
Finally, consider what resources you will need and whether you can get them, as well as whether pursuing this business idea would meet your personal and financial goals. We hope that these steps and strategies help you explore exciting new business opportunities!